6

(Fig. 1 – Schematic of HUL’s Distribution Network)

Distribution at the Villages:

The company has brought all markets with populations of below 50,000 under one rural sales

organisation.The team comprises an exclusive sales force and exclusive redistribution stockists.The team

focuses on building superior availability of products. In rural India, the network directly covers about 50,000

villages, reaching 250 million consumers, through 6000 sub stockists.

‐

(Fig. 2 – Rural Distribution Model of HUL)

HUL approached the rural market with two criteria the accessibility and viability. To service this segment,
‐

HUL appointed a Redistribution stockist who was responsible for all outlets and all business within his

particular town. In the 25% of the accessible markets with low business potential, HUL assigned a sub

stockist who was responsible to access all the villages at least once in a fortnight and send stocks to those

markets. This sub stockist distributes the company's products to outlets in adjacent smaller villages using
‐

transportation suitable to interconnecting roads, like cycles, scooters or the age old bullock cart. Thus,
‐

Hindustan Unilever is trying to circumvent the barrier of motorable roads. The company simultaneously

uses the wholesale channel, suitably incentivising them to distribute company products. The most common

form of trading remains the grassroots buy and sell mode. This enables HUL to influence the retailers stocks
‐ ‐

and quantities sold through credit extension and trade discounts. HUL launched this Indirect Coverage

(IDC) in 1960s.Under the Indirect

7
Coverage (IDC) method, company vans were replaced by vans belonging to Redistribution Stockists,
which serviced a select group of neighbouring markets.
Distribution at the Urban centres:

Distribution of goods from the manufacturing site to C & F agents take place through either the trucks or rail

roads depending on the time factor for delivery and cost of transportation. Generally the manufacturing site

is located such that it covers a bigger geographical segment of India. From the C & F agents, the goods are

transported to RS’s by means of trucks and the products finally make the ‘last mile’ based on the local

popular and cheap mode of transport.

New distribution channels
Project Shakti

This model creates a symbiotic partnership between HUL and its consumers. Started in the late 2000,

Project Shakti had enabled Hindustan Lever to access 80,000 of India's 638,000 villages .HUL's
partnership with Self Help Groups(SHGs) of rural women, is becoming an extended arm of the company's

operation in rural hinterlands. Project Shakti has already been extended to about 12 states Andhra‐

Pradesh, Karnataka, Gujarat, Madhya Pradesh, Tamil Nadu, Chattisgarh, Uttar Pradesh, Orissa, Punjab,

Rajasthan, Maharashtra and West Bengal. The respective state governments and several NGOs are

actively involved in the initiative. The SHGs have chosen to partner with HUL as a business venture, armed

with training from HUL and support from government agencies concerned and NGOs. Armed with micro ‐

credit, women from SHGs become direct to home distributors in rural markets.
‐ ‐

The model consists of groups of (15 20) villagers below the poverty line (Rs.750 per month) taking micro
‐ ‐

credit from banks, and using that to buy our products, which they will then directly sell to consumers. In

general, a member from a SHG selected as a Shakti entrepreneur, commonly referred as 'Shakti Amma'

receives stocks from the HUL rural distributor. After being trained by the company, the Shakti entrepreneur

then sells those goods directly to consumers and retailers in the village. Each Shakti entrepreneur usually

service 6 10 villages in the population strata of 1,000 2,000. The Shakti entrepreneurs are given HUL
‐ ‐

products on a `cash and carry basis.'

The following two diagrams show the Project Shakti model as initiated by HUL.
8
Project Streamline

To cater to the needs of the inaccessible market with high business potential HUL initiated a Streamline

initiative in 1997. Project Streamline is an innovative and effective distribution network for rural areas that

focuses on extending distribution to villages with less than 2000 people with the help of rural sub ‐

stockists/Star Sellers who are based in these very villages. As a result, the distribution network directly

covers as of now about 40 per cent of the rural population.

Under Project Streamline, the goods are distributed from C & F Agents to Rural Distributors (RD), who has

15 20 rural sub stockists attached to him. Each of these sub stockists / star sellers is located in a rural
‐ ‐ ‐

market. The sub stockists then perform the role of driving distribution in neighboring villages using
‐

unconventional means of transport such as tractor and bullock carts. Project Streamline being a cross

functional initiative, the Star Seller sells everything from detergents to personal products.
Higher quality servicing, in terms of frequency, credit and full line availability, is to be provided to
‐

rural trade as part of the new distribution strategy.

The diagram in the next page shows the model of Project Streamline.
9
Hindustan Lever Network (HLN)

It is the company's arm in the Direct Selling channel, one of the fastest growing in India today. It already

has about several lakh consultants all independent entrepreneurs, trained and guided by HLN's expert
‐

managers. HLN has already spread to over 1500 towns and cities, covering 80% of the urban population,

backed by 42 offices and 240 service centres across the country. It presents a range of customised

offerings in Home & Personal Care and Foods.

The New Compensation plan for HLN partners provides new exciting ways of earning substantial income in

addition to offering rewards like revenue sharing through the innovative concept of “pools”
Mother Depot and Just in Time System

In order to rationalise the logistics and planning task, an innovative step has been the formation of the

Mother Depot and Just in Time System (MD JIT). Certain C&FAs were selected across the country to act as
‐

mother depots. Each of them has a minimum number of JIT depots attached for stock requirements. All

brands and packs required for the set of markets which the MD and JITs service in a given area are sent to

the mother depot by all manufacturing units. The JITs draw their requirements from the MD on a weekly or

bi weekly basis.
‐

Leveraging Information technology

HUL customers are serviced on continuous replenishment. This is possible because of IT connectivity

across the extended supply chain of about 2,000 suppliers, 80 factories and 7,000 stockists. This

sophisticated network with its voice and data

29

discounts

sales promotional

expenses on direct selling agents

entertainment expenses etc.
Exhibit 3: Marketing Expenses as percentage of Sales
Marketing Expenses as % to Sales
0.04
2.71
1.01
0.00
0.70
4.10
4.59
4.68
7.35
9.51
15.71
0.32
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
HUL
Nirma
Dabur
Colgate-
Palmolive
Reckitt
Benckiser
P&G
Home
Godrej
Emami

P&G

Hygiene &

Health
Henkel
Henkel
Marketing
ITC
MarketingEx
p.as%toSale
s

Here we see that the marketing expenses of HUL are among the lowest in the market (only the second

lowest after Colgate – Palmolive which has very good brand pull for its “Colgate” toothpastes). This proves

that HUL is able to maintain considerable brand pull through advertising. ITC again comes among the

lowest its tobacco products require very little ‘push’ and have very high rotations. Also, ITC mostly deals

with small retailers and distributors (‘paan cigarette shops owners’) who have marginal bargaining power.
‐

Another revelation is that Henkel, which has zero advertising expenditure, has the highest marketing

expenses among all others. But this strategy to ‘push’ the products through the channel partners may not

be a good one for Henkel as it might be losing out for the lack of visibility and thus consumer mind share

and brands such as Margo, Fa, Neem toothpaste etc are losing out in the market. Further, it is also a

pointer to the fact that Henkel’s largest business share is in industrial

30

chemicals (adhesives, sealants – e.g., popular brand “Loctite”; this segment constitute ~44% of worldwide

sales of Henkel) and for B2B, advertising per se is not that much important. For B2B , important is direct ‐

selling approach, which generally requires negotiations, volume discounts etc, which are reflected in

highest marketing expenses (as percentage to sales) compared to others.

P&G is in between the extremes and with considerable advertising expenses also, it is unable to create

sufficient pull for its products in India (as evidenced by the fact that marketing expenses are also relatively

higher) or it’s getting stuck for the lack of sufficient distribution muscle a la HUL in traditional retail in India

and suffers from lack of reach and availability at the end consumer level.

As mentioned earlier, both Colgate Palmolive and Reckitt Benckiser both enjoys very good brand loyalties
‐ ‐

and market leadership for their key brands like Colgate toothpastes and Dettol (#1 in antiseptics), Herpic,

Mortein etc. This is corroborated by the fact that these companies have some of the lowest marketing

expenses (as percentage to sales) in the group, as shown in the chart.

Distribution Expenses
Distribution expenses include the outward freight cost to the company.
Exhibit 4: Distribution Expenses as percentage of Sales
Distribution Expenses as % to Sales
4.90
5.16
3.14
2.21
4.19
6.53
3.50
2.53
6.70
3.81
4.22
2.55
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
HUL
Nirma
Dabur
Colgate-
Palmolive
Reckitt
Benckiser
P&G
Home
Godrej
Emami

P&G

Hygiene &

Health
Henkel
Henkel
Marketing
ITC
Distributio
nExp.as%toS
ales

31

We have seen that T&L plays a very important role for HUL & others who have pan Indian presence in
‐

FMCG business. Colgate Palmolive, Emami & ITC has some of the lowest distribution expenses (as % to
‐

sales figures) & P&G has the highest. HUL is lower in this respect than Nirma & P&G, but higher than

Henkel. This can be explained somewhat from the impact of the variable, Time Band of purchase, on the

increased transport intensity for HUL in the last mile for some of the products like household personal care,

laundry detergent, branded atta etc in the first & last week of the moth. ITC (tobacco), Henkel (largely B2B)

are mostly protected from this implication of the variable.

Another important thing to remember that value density of FMCG goods is relatively lower, causing share

of transportation costs in the overall cost structure to be relatively higher. This implies dispersed

manufacturing, locating manufacturing plants nearer to major markets. So one location manufacturing to

get higher economies of scale and on the other hand, trying to serve geographically diverse markets may

not be economically attractive for FMCG sector. Compared to HUL’s 40 manufacturing plants across India,

Nirma, the 2nd largest FMCG major in soaps and detergents category, has 6 manufacturing plants, all
located in and around Gujarat. So, transportation cost of Nirma, if it tries to cater to pan Indian market will
‐

be higher. This is supported by the fact that Nirma’s higher distribution cost percentage than HUL. For

P&G, the same reasons significantly affect its distribution cost which is highest for the group analyzed.